Discovery of $3.5 Billion Theft in Bid Rigging-Based “Policy Sharking” Scheme Leads to Formation of ASFIT to Protect Senior Policyholders
July 11, 2008 – 9:31 amMark Ross Group
of Companies
ASFIT FORMED to STEM ABUSES AGAINST SENIORS
La Jolla, CA - July 9th, 2008 — Responding to the discovery of an elaborate conspiracy to defraud millions of dollars from senior insurance policyholders, Mark E. Ross, Chairman of the Mark Ross Group of Companies, today announced the formation of the American Seniors Financial Integrity Trust, a non profit association to protect seniors from such “Policy Sharking” and related fraudulent schemes as are alleged in lawsuits involving at least $3.5 billion dollars in life insurance policies. The “Trust” will seek to gather seniors who are prospectively or presently affected by this scheme and provide for the proper disposition of their assets through referrals to a panel of advisors approved by a Committee on Ethical Standards and through the referral of suspected cases of fraud to prosecutors.
Mr. Ross described the discovery of criminal “Policy Sharking” fraud in a statement to prospective ASFIT members as follows:
On “Policy Sharking”, Bid Rigging and the Theft of Seniors’ Assets as Discovered in Current Cases in Litigation
A statement regarding the discovery of bid fabrication by certain defendants in Jenkins vs. Mutual Credit Corporation involving the theft of more than $ 3.5 BILLION of life insurance policies by a conspiracy involving XE Capital Management KBC Financial Products, a subsidiary of the Belgian banking conglomerate, Mutual Credit Corporation, Sierra Life Solutions, Michael Brown, Anthony Jacobson, A.J. Meade, David Doten et. al.
After balancing the relative importance permitting certain information to surface through formal court proceedings against the public’s need to know to prevent ever increasing damage to innocent senior citizens, we have determined that the public’s need to know and the market’s need for integrity outweighs any limited disadvantage that the defendant firms and their principals, might experience from a brief acceleration of this disclosure.
We hold that a conspiracy of several firms, including a major international bank, a hedge fund and others, including those mentioned above, as well as certain facilitating professional entities, have engaged in a widespread, premeditated “Policy Sharking” enterprise involving fraud, coercion, deceit and extreme abuse of elders, in order to secure a $200 million profit for the principals of XE Capital Management of New York and their conspirator/partners.
Through the sale of notes representing premium loans secured by approximately $3.6 billion of life insurance policies to KBC Financial, an indirect wholly owned subsidiary of KBC of Belgium, a $600 billion bank, senior policyholders have had their assets “sharked” and stolen.
These policy loans had a unique feature. The interest rates could not be determined except by reference to the fair market value of the underlying policies at the 24 month maturity date of the loans. While there was an objective protocol set forth in the Notes, this would have produced a fair and true result as envisioned when the policies were initially sold to the public. As this honest and equitable result would not have produced the most advantageous result and profit to either the seller (XE Capital, Brown, Jacobson, Meade and certain family trusts) or to the buyer (KBC Financial Products), we charge that these conspirators masterminded a complex, duplicitous scheme (which we have defined and submitted to several legislative committees and regulatory officials to adopt as terminology, “Policy Sharking”) intended to seize all of the policies that comprise the two corporeal entities (i.e., Special Purpose Vehicles) that hold all of the Notes and eventually the policies when they are wrongfully taken from their rightful owners.
The stakes are enormous and the potential impact on the integrity and public perception of the secondary market for life insurance and, by inference, the entire life insurance marketplace is potentially devastating. It is essential that a conspiracy of this breadth and magnitude be uncovered as quickly as possible by ethical market participants committed to this marketplace on a permanent basis. We have rejected an ostrich approach, i.e. awaiting the slower but inevitable hands of justice intervening while hundreds of our nation’s seniors are seriously harmed. We believe that we must show that the industry consists, for the most part, of honest, creative, ethical professionals attempting to provide value to the public and to conduct themselves with principle and integrity.
The criminal action is focused within the definition of each policy’s contingent interest calculation.
The program starts with a loan to allow seniors to acquire life insurance without posting any collateral, in addition to the life policy itself. The loan was for generally a two year period at which time the policyholder/borrower is told that he can pay off the loan and keep the policy. As an additional inducement to enter this arrangement with MCC/Sierra, the California licensed premium finance entity arranged to advance additional funds equal to 1%, 2% or 3% of the policy’s face amount (e.g. $ 200,000 per $10 million of the policy which, as a non-recourse loan, would never need to be repaid. The interest on these loans is divided into two baskets:
1a. Fixed interest equal to 10% of the amount loaned annual,
1b. Plus a onetime origination fee of 5% of the amount borrowed
2. PLUS, a contingent interest.
The contingent interest is a definitive number that cannot be determined until the loan maturity date since the contingent interest is defined as the fair market value of the policy on such date less the financial interest on the same date, but in no event to exceed 10% of the face amount of the policy. Please note that the 10% is a MAXIMUM number that is only expected to be achieved in a select few odd cases, often as the result of a serious morbidity event or a degradation in one’s health status in the 24 months since policy issuance. To prevent any ambiguity or subjectivity in the calculation of this contingent interest, it was necessary to adopt a uniform all purpose protocol that would yield the result in each case with total equilibrium between the parties without the possibility of requiring any negotiation or court intervention in each case. This was critical in the marketing of these policies because it would not have been possible to sell an arrangement where the interest determination (the key to whether a policyholder truly has control and dominion of a policy under these circumstances) was left to the judgment of the asymmetrically superior party (the MCC Group and its backers) or where it depended upon any kind of negotiation (negotiation being implausible when the bargaining powers are at such disequilibrium levels). Therefore, it was a core and essential element in the Notes (as written and hence contracts of adhesion by the lender or MCC) as well as in the Insurable Interest Opinion (written by the law firm of De Castro West et al ) that the protocol for determining the fair market value be included and be inviolable. The protocol was perfectly straightforward and not open to any misinterpretation. Each trust was required to have two trustees, an investment trustee, appointed by the insured, often a family member or trusted friend, who had most of the traditional trustee’s powers and the administrative trustee, who was recommended by MCC and in all cases was accepted by the insured. The primary trustee was David Doten, a former mid level trust officer who had earned no more than approximately $50,000 in any given year before being selected for this role by Mike Brown and Anthony Jacobson. We believe that Mr. Doten’s earnings increased to over $1 million as a result of this “selection for the lottery”. It is beyond doubt that his loyalties were to the program sponsors who included and recommended him for this role (as was the case with the two other administrative trustees). Their job was only to sign forms and to arrange for the filing of trust tax returns. Instead, as part of the conspiracy, they were “ordered” to assume a much larger role to the substantial detriment of the trust and its beneficiaries to whom they owed an undivided loyalty and to the benefit of their sponsors, MCC and its backers.
The protocol was simple. The investment trustee, generally aided by an independent broker would obtain bids from two licensed life settlement providers (they did not need to be the highest bids) and submit them to the lender. If the lender did not accept the higher of the two bids, the lender could require that the investment trustee (not the lender) seek a valuation from Coventry First, the named valuator in the documents. Only if Coventry will not provide the service, shall the investment trustee seek to find another Valuator acceptable to the lender. Unknown to any of the borrowers, the XE Capital Group and the Michael Brown and Anthony Jacobson Group that owned all of the Notes that represented the financing of these policies sold the companies (the Special Purpose Vehicles or SPVs) that held all of these Notes to KBC Financial Products, a subsidiary of a huge Belgian financial conglomerate. In so doing, the sellers realized a profit exceeding $200 million. However, they did so dishonestly. In order to perpetrate the required fraud upon the senior citizen policyholder/borrowers that comprised this portfolio, they made pre-arrangements to subsidize their large profit by manipulating the policy fair market valuations and “stole” much of the value that belonged to the real owners and transferred it to the buyers in exchange for their $200 million profit. They accomplished this egregious fraud upon the elderly seniors who were, in general, the individual lives that had been insured and who were included in this portfolio.
In order to create this massive and premeditated fraud, MCC and KBC, perhaps with the assistance of their professional advisors and facilitators, entered into a new and secret document called the Servicing and Management Agreement of 2006 (“The SMA”) which required that MCC service all of the loans in the portfolio after the sale of such loans to KBC in a fraudulent and dishonest manner. It has taken us almost two years and millions of dollars (as well as multiple threats to ourselves and to the senior citizens who stood up for themselves, Harry and Anna Jenkins and Donald L. Kueltzo who should be considered the real heroes of this affair) to “discover” this document and the files of the individual borrowers to begin to prove our theories of the case. What this document indicated and what the files confirmed were nothing short of incredible! What is even more incredible will follow next!
The SMA completely changed the protocol by which the contingent interest would be determined and did so in a manner designed to cause the buyer of the notes to always win and the clients to always lose. In fact, that is precisely what happened! the new language in the SMA required that a borrower that wished to pay off his/her loan now had to produce two purchase bids from licensed providers that were acceptable to KBC (the document actually names the SPV holders of the notes but they are completely dominated by KBC so it is essentially the same thing) AS GOOD VALUATIONS. Thus, the NOTES have been unilaterally and improperly modified to eliminate the concept of the valuator (Coventry First) and to subject the purchase bids to the condition that they be acceptable to KBC as good valuations. First, there was never a requirement that one succeeds in obtaining permission from KBC and, second, it is IMPOSSIBLE to ever have a purchase bid also be a good VALUATION. As any first year law student can tell you, a bid and a valuation are different commercial documents and can never substitute for each other. As a result, the author of this portion of the SMA very cleverly eliminated every protection that had been built into the system for the senior Citizens and instead built a guaranteed contractual machine to commit fraud in exchange for money.
What has been the score after the first 314 loan maturities? As required in the SMA, and as is proscribed or not permitted in the Notes, MCC has demanded in writing from each and every borrower that each must pay the full 10% Maximum contingent Interest in every single case. Of course, this is a mathematical impossibility. In addition, of the first 314 cases, 309 (all but 5 cases) have relinquished their policies to the lenders rather than fight in court. WHY? As an example, when we were asked to represent the Jenkins family, we followed the Note with high fidelity and determined, with a Coventry valuation, that NO contingent interest was due. Despite the requirement that the lender then accept our check in full payment of the debt and return the policy to its rightful owner, MCC “decided” that the bidding was not bona fide and neither was the valuation. This is because they claimed that they had procured purchase bids of 22% and 24.5% of face amount whereas our bids and valuations were all in the approximate 7%-8% of face amount area and therefore no contingent interest was due. It should be noted that for each and every one of these borrowers who relinquishes his/her policy back to these people will have to pay a tax on this 10% or $1 million per $10 million policy (thus, in the case of Mr. Kueltzo he is facing the payment of tax on an additional $4 million of taxable income as a result of this fraud.
And now, to justify their argument that they can reject the pricing of contingent interest differently than Mr. Jenkins submitted in complete accord with the notes, MCC/KBC claimed to have purchase bids of 22% and 24.5%. We have studied the depositions of these two well known settlement firms and each admits that they were requested to do a “favor” for Mr. Jacobson in exchange for the promise of large amounts of new settlement business—which never materialized—and prepare “fabricated” term sheets for MCC to utilize to support their outrageous claims. They settlement firms did not craft their own bids—they were not prepared to close these cases—they did not have medical files or life expectancies or insurance policy data or illustrations or even the most basic pre-requisite, a verification of coverage from the insurer.
In other words, these were fraudulent purchase bids, acquired and submitted to defraud our clients, advisors to them and the honorable court.
We are preparing to prove this in court and in any other forum where this mission will take us. We have sworn an oath to assist these elderly people who have been abused, intimidated and financially assaulted.
As a result of this incredible and callous case, we announce the establishment of the ASFIT, the American Senior Financial Integrity Trust, which will provide research and education training to American seniors and, where necessary, will protect and defend seniors from the demoralizing and dehumanizing degradations of financial fraud perpetrated by unscrupulous and morally and ethically challenged individuals.
For further information, please contact: Mark E. Ross 858 456 0616.
